One of the most basic questions you must ask yourself as a potential homebuyer is this: Should you buy an existing home or a newly built one? Although this seems like a fairly straightforward question, coming up with the right answer for your situation can be surprisingly complicated. That's because there are so many factors to consider. There are distinct advantages and disadvantages to either option, depending on your point of view and your personal and financial situation.

Should You Start Over on Your Current Lot?

Perhaps you already own a house on a two-acre lot that has doubled in value. Although you love your neighborhood , you've outgrown your home. Your big problem? There simply aren't any new homes or parcels of land for sale where you live.

In this case, you might be tempted to tear down your home - or extensively remodel it - and begin again. While this option may seem tempting, you have to consider the end result. Your dream home shouldn't wind up exceeding the value of neighboring properties. In terms of market value, you will benefit more from having a home that is comparable in price or slightly below the other homes in your neighborhood. This leaves room for appreciation to strengthen your investment over time. See Home Over-Improvement Can Lead to Market Under-Performance.

Even if a new (or extensively remodeled) home on your existing lot seems to make financial sense, don't call the contractor just yet. Have you investigated how the building codes may have changed since your house was built? Have you factored in how much you will have to spend on living arrangements until you can move back onto your property? And what will happen if the new construction or remodeling is delayed for one month. Or two? Or three?

These are all questions you need to answer before choosing this option.

While a new home typically means less maintenance than an existing home, you may get higher quality craftmanship in a home that was built when labor and materials were less expensive. Yet an older home may have undergone renovations that do not meet today's building codes.
They may also be much less energy efficient or contain hazardous building materials, such as lead or asbestos.

Location

Today, new homes are located further away from major metropolitan areas where there is land available for development. If you like to live far from the crowd, this is a distinct advantage. However, don't forget to factor in the additional costs of such a home. As
gas prices rise, it will cost you more to get to the grocery store and shopping areas, as well as your commute to work.

You need to weigh the pros and cons of a long commute very carefully. According to a recent BusinessWeek article entitled "Extreme Commuting," the ranks of "extreme" commuters, those who spend at least a month of their lives each year traveling a minimum of an hour-and-a-half to work and back (vs. the U.S. average of 50 minutes), has leapt to an incredible 95% since 1990. This kind of brutal commute, says the article's authors, is driven by the ever-expanding search for affordable housing and better schools. However, studies show that commuters are on average much less satisfied with their lives than non-commuters. According to economist Alois Stutzer of the University of Zurich, commuters overestimate the value of the home, school, or job that commuting will bring them and underestimate the associated stress and isolation of a long commute. See the average commute time for residents living in your neighborhood or another location.

Layout and Landscaping

Consumer tastes, along with architecture, have changed with the times. Generally, newer homes have fewer, but larger rooms, including spacious kitchens and family gathering areas such as media centers or "Great Rooms." Older homes tend to have more, but smaller, rooms, including functional kitchens with little storage and a separate, small dining room. Still, an older home may have unique architectural elements such as moldings or ceiling medallions which newer construction usually lacks. Your personal preferences and lifestyle will dictate which type of home and layout is most appealing to you.

Another cost factor to consider is landscaping. An older home is more likely to have a mature lawn, shrubs, and other plantings. Newer homes may lack an established lawn. Of course an older home's landscaping may be sorely in need of a complete overhaul. Either way, depending on your lot size and the kind of visual statement you want your landscaping to make, improvements can easily cost you $1,000 to $8,000 or more.

Amenities

If you're looking for modern amenities such as whirpool tubs, skylights, and top-of-the-line kitchen appliances, a new home will have more of the features you desire. It will most likely be cheaper for you to purchase a new home that has these features rather than try to add them to an existing home. On the other hand, if you are not overly concerned with having the newest conveniences, perfectly good appliances are often conveyed with an older home.